March 29 (Bloomberg) -- North American truckmakers such as
Navistar International Corp. are poised for a third year of
sales gains as the economic recovery forces fleet owners to
replace aging vehicles.

Shipments of Class 8 trucks, the backbone of interstate
hauling, may rise 12 percent this year to more than 285,000,
according to industry consultant FTR Associates. That follows
gains of 65 percent and 29 percent the past two years as the
industry rebounded from a recession-low of 120,000 in 2009.

Carriers have been busy hauling everything from produce to
washing machines and cars as the Institute for Supply
Management’s factory index has shown 31 months of expansion. The
haulers, who let fleets age during the financial crisis, are
reinvesting in new trucks, and that’s benefiting equipment
makers including Paccar Inc.

“You don’t buy a truck unless there’s freight to haul, so
that’s catalyst one,” said Jeff Kauffman, a New York-based
analyst with Sterne Agee & Leach Inc. A second driver of demand:
Old trucks must be replaced when maintenance costs soar. “From
an age perspective, there is a humungous need” for new vehicles,
he said.

While truck production has risen each of the past two years,
it topped the typical replacement level of 250,000 last year for
the first time since 2006, and then by less than 2 percent.
Truckmakers are boosting production to meet the forecasted
demand, with Class 8 assembly up 74 percent last month from a
year earlier, the latest for which data are available, according
to Bloomberg Industries.

Growing Backlog

Backlog, or the time from order to delivery, is five to six
months and will rise to seven months this year as manufacturers
rush to meet growing demand, said Noel Perry, a managing
director with Nashville, Indiana-based FTR. A nine-month lag is
typical in a “hot market,” he said.

Truckers are seeking to refresh fleets largely composed of
vehicles bought from 2004 to 2006 ahead of a 2007 emissions
regulation. Those trucks, in use beyond the usual five years or
500,000 miles, now help compose a nationwide fleet that’s among
the oldest since at least 1980, the final year of Jimmy Carter’s
U.S. presidency.

Maintenance costs grow rapidly as vehicles age and break
down more frequently.

“Trucks with less than 500,000 miles on them on average
are 2 to 4 cents per mile maintenance cost. Above 500,000 miles,
that goes up to 15 to 20 cents,” Ryan Amerman, lead manager of
the Invesco Summit Fund, which owns Cummins Inc. shares, said by
telephone. “Especially if you’re a large fleet that’s doing
long-haul deliveries, there’s a big incentive to use new versus
older trucks.”

Financing Available

Even smaller carriers, which typically are less likely to
have access to capital for new-vehicle purchases and often buy
in the used market, are able to borrow money to buy vehicles,
Perry said.

“The big question is, can the small guys, big swing
orderers, get capital?” he said in a telephone interview. “The
intelligence is they can.”

Revenue for Lisle, Illinois-based Navistar climbed 11
percent in the fiscal first quarter of 2012, while Bellevue,
Washington-based Paccar’s sales advanced 58 percent in the
fourth quarter, the most recent period for which it has reported
results. Sales for Volvo AB, based in Gothenburg, Sweden, grew
20 percent in the quarter ended Dec. 31. Trucks made up 65
percent of Volvo’s revenue last year.

Shares Rising

Navistar has advanced 7.2 percent this year, while Paccar
has gained 24 percent, compared with 35 percent for Daimler and
27 percent for Volvo. Engine-maker Cummins Inc., another
beneficiary of the boost in demand, has advanced 34 percent in
that period.

The U.S. economy may grow 2.2 percent this year, the median
forecast of 70 economists surveyed by Bloomberg. The nation’s
jobless rate fell to 8.3 percent in February, the lowest level
in three years, the Labor Department said March 9.

That growth has boosted freight shipments enough so that
truck capacity is tight and carriers are able to pass some of
the rising costs on to shippers, Hartford said. That, combined
with greater efficiency of new trucks, means carriers are making
those purchases even as emissions regulations have made new
vehicles more expensive than in the past.

Fleet-Size Debate

Truckers this year are doing more than replacing old
vehicles, they’re adding to fleet size, said Perry.

“Are people ordering to grow fleets? Some are now,” Perry
said. “None were in 2011.”

Not everyone agrees. The economic recovery is still
sluggish, meaning most of the sales are for replacement trucks,
Benjamin Hartford, an analyst with Milwaukee-based Robert W.
Baird & Co., said in an interview.

“It’s not growth in the fleet,” Hartford said. “In fact,
if you assume those ‘05, ‘06 model years coming out of the fleet,
on the margin, the size of the long-haul, for-hire truckload
fleet will shrink this year.”

Truckers, such as XPO Logistics Inc. and J.B. Hunt
Transport Services Inc. are also seeing some shippers transfer
freight to railroads for hauls longer than 500 miles to avoid
the rising costs of trucking, according to Bloomberg Industries.
Still, far more goods move by truck than by the so-called
intermodal combination of rail and truck.

“We have a good economy now. It’s not robust, but it’s
good. The cash flow of the truck industry is very good,”
Kauffman said. “Are the right ingredients in place for truck
purchasing to occur? The answer’s yes.”